Two year decline in US property prices halted but recovery likely to be patchy, latest reports show

The two year fall in US average real estate prices has come to an end and in many areas property is no longer overvalued, according to reports.

The latest quarterly index from IHS Global Insight, provider of economic and financial analysis, shows the decline stopped in the third quarter of this year when prices increased by 0.2% compared with the previous quarter.

It is a patchy recovery though with some areas still seeing a fall in prices. Overall average prices increased but 161 of the top 330 metropolitan areas have declines in prices. However, the report points out that it is still an improvement from the last quarter of 2008 when prices dropped in 317 metro areas. For the first time since the study began in 2005, no metro areas were ‘extremely overvalued’.

However, the firm warns against extrapolating the results of the report into wider trends. ‘While the rate of decline has decreased throughout the year as the market began to stabilize, it’s not at all clear that the market is on a recovery path,’ said James Diffley, group managing director of IHS Global Insight’s regional services group.

He added that although the increase is the first since the second quarter of 2007 when the slide began, prices remain 10.7% below the peak of that same year.

Meanwhile the latest monthly property price index from the Federal Housing Finance Agency shows that prices increased 0.6% on a seasonally adjusted basis from September to October.

It also shows that signs of recovery patchy. The largest declines from the previous quarter came from Bend, Oregon’s where prices fell 5.6% and Las Vegas where they dropped 5%. Both metros are 33.5% and 56% below their peaks in 2006, respectively.

Of the 330 metro areas studied, eight dropped below 50% of their peaks with Mercedes, California some 66% below its highest point.

Since the cycle began, only 16 MSAs have avoided a net home pricing decline, the report shows. Six are in Texas and all but Pittsburgh are in the centre of the country.